India's inflation for the month of May has gone up to 6.30 percent. Internals show it is tough to explain whether it is entirely due to base effect or lockdown impact.
It can't be a low base because even the month-on- month, that is May over April, inflation has seen a sharp rise of 1.5 percent.
While global price rise is reflected in metals, fuel and edible oils, the rise in prices of eggs, pulses and fruits show domestic pressures. Even if these are attributed to poor supply movement, how can one explain the rise of core inflation? Health services for instance have risen in cost by 8 percent in rural and in urban areas and as have the cost of other household services. So the core inflation is indicating that perhaps there is a demand element to the inflation.
So, what are the chances that this inflation will continue in a situation of low capacity utilization? Can the Reserve Bank of India (RBI) continue pouring liquidity when prices are already high? Or will it be forced to pull back liquidity or push up rates? Should RBI choose to look through the inflation? If it does look through, what will be the consequences for savers, for inequality and for growth? To discuss this, Latha Venkatesh spoke to R Sivakumar, Head of Fixed Income at Axis Mutual Fund; Kaushik Das, Chief Economist at Deutsche Bank; Ananth Narayan, Professor at SPJIMR and Abhishek Upadhyay, Senior Economist at ICICI Securities PD.Watch video for more.